Governors' Seminar: Reducing Vulnerability: Learning From Past Crises
3 May 2014, 10:00 am - 12:00 pm, Congress Hall 4
Since the 1997 financial crisis, developing Asia has strengthened its financial systems and corporate governance. However, the financial turbulence that affected some Asian economies last year, following the US signal of a possible tapering of its quantitative easing program, reminds us that the region remains vulnerable to external shocks. Asia needs to continue to grow strongly if many of its low-income countries are to graduate to middle income status; if middle-income countries are to avoid the middle income trap; and if the region is to continue to make gains in reducing extreme poverty. To achieve these goals, it is critical that financial crises do not reoccur.
Experience shows that both developed and developing economies are prone to financial crises. These tend to occur when the financial system is not well regulated and supervised, when credit growth is rapid and financial institutions assume excessive risk, and when effective macro-prudential measures are absent. Increasing globalization and financial integration magnify the cross-border spillovers of economic and financial shocks. The 1997 Asian financial crisis shows the importance of avoiding currency overvaluation and currency and maturity mismatches in public and private borrowings. The 2008 global financial crisis was triggered by the burst of housing bubbles in the US and Europe that were fueled by easy credit and by the expansion of complex financial products. The euro area crisis started as a spinoff of the global financial crisis but became protracted due to a number of factors related to the single currency and its design.
Financial crises paralyze the financial system, lead to large output and job losses, bring financial and human suffering to millions of households, and erode a country's hard-earned gains in poverty reduction. Timely and effective crisis responses can limit their costs.
This seminar will discuss the lessons that Asian policy makers should learn from past crises and from the more recent financial turbulence in the region. The panelists will discuss:
- How important are good economic fundamentals—fiscal prudence, monetary stability, and a flexible exchange rate—and macro-prudential regulation to preventing financial crises? What are the region's policy priorities to further reduce financial vulnerability?
- In an increasingly globalized world where what happens in one country can easily spill over to others, how should countries better coordinate macroeconomic policies to reduce global financial volatility? What lessons have we learned from the recent global crisis?
- Once a crisis starts, how should authorities respond? What lessons have been learned from past crises and from the recent emerging market financial turmoil?
- In view of continuing financial innovation, how can financial regulation be improved? How important are global initiatives (such as Basel III) in preventing future crises?
- What is the role of regional cooperation in mitigating financial contagion and promoting recovery? How can this role be enhanced? What should be the next steps in strengthening regional and global financial safety nets?
Muhamad Chatib Basri
Minister of Finance, Republic of Indonesia
Minister of Economy and Budget Planning, Kazakhstan, Chair of the Board of Governors and Governor for Kazakhstan in the Asian Development Bank
Assistant Secretary for International Markets and Development, U.S. Department of the Treasury
Finance Secretary, Government of India and Alternate Governor for India in ADB
President of ADB and the Chairperson of ADB's Board of Directors
Deputy Director-General, International Bureau, Ministry of Finance, Japan
Moderator: Zeinab Badawi
World News Today, BBC